Redesigning Medicare Shared Savings Program: Implications for Risk-Averse and Strategic ACOs
Abstract
The Medicare Shared Savings Program (MSSP) aims to incentivize accountable care organizations (ACOs) to improve healthcare efficiency and reduce costs. However, current MSSP contract designs often overlook the forward-looking and risk-averse nature of ACOs, leading to suboptimal participation and investment. We develop a dynamic principal-agent framework to model the interactions between a risk-averse ACO and the MSSP. The optimal contract incorporates dynamic benchmarks and risk-sharing rates, allows ACOs strategically allocate investments toward cost reduction and could achieve a second-best outcome. Using structural estimation methods, we calibrate the model to recover key parameters governing optimal contract design and ACO behavior. Our findings demonstrate that the current MSSP structure dampens ACO participation and investment efforts, as it fails to mitigate the ratchet effect and the risk exposure faced by the ACOs. Counterfactual analyses reveal that the proposed contract significantly enhances ACO participation rates and cost-reduction efforts, underscoring the importance of aligning contract design with the forward-looking and risk-averse nature of ACOs. These results offer actionable insights for policymakers seeking to refine payment models and improve long-term healthcare outcomes under the MSSP.
